TWIA balks at costs and risks of would-be reinsurance top up

The Texas state insurer of last resort, the  Texas Windstorm Insurance Association (TWIA), passed on chances to top-up its 2023 reinsurance tower beyond initial plan, balking at risks of ILW offers and costs of still-unplaced elements of the planned tower.

TWIA had previously given its approval to hit the market for a total limit at $4.5 billion to just hit its 1:100 PML minimum mandate, but had flirted with varied calculations of what that PML ought to be and authorized brokers to propose steps towards an alternative $5.2 billion mark.

TWIA's broker, Gallagher Re, came forward with a proposal for purchase of industry loss warrants (ILW), citing lower cost and easier market travails.

Traditional indemnity reinsurance was not highly recommended for the top-up given continued cost issues and capacity constraints.

"Placing nearly $700 million of new limit in today's market is extremely difficult," Gallagher Re's Allen Cashin (pictured) told the TWIA board. "Conditions in the reinsurance market are still very, very challenging."

TWIA board members ultimately round-filed the idea of switching to ILW coverage, citing both concerns about the gap between industry modelled losses and TWIA incurred losses plus lingering doubts about costs of financing other elements of the reinsurance tower, including bond issuance.

Nor were any other top-up proposals proposed or passed at the meeting.

"We've already agreed to the 4.5," TWIA board chair Chandra Franklin Womack said in conclusion to the board sitting. "For this season we are leaving our structure as-is."

TWIA now seeks to obtain approximately $2.24 billion in reinsurance coverage to meet the $4.5 billion funding target for the 2023 storm season. That includes $1.043 billion in traditional cover at the mid-year renewals.

Some steps towards the increased limit have already been taken. Recent Alamo Re cat bond issuance went $100 million above a maturing tranche.

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